401(K) Hardship Distributions Affected by New Legislation

A section of the Bipartisan Budget Act of 2018, which extends funding for the government until March 23rd, includes a provision that will affect rules related to 401(K) hardship distributions.

The Act will remove the 6-month restriction on elective deferrals following a hardship distribution, will allow hardship distributions to include income on elective deferrals, and will remove the stipulation to “take available loans before taking hardship distributions”.

JD Supra provided the following detail:

An employee that takes a hardship distribution is generally prohibited from making elective deferrals to the plan (or any other plan maintained by the employer) for at least 6 months following the hardship distribution. Also, hardship distributions are only permitted from certain accounts. Except for certain grandfathered amounts, they cannot be taken from the participant’s income on elective deferrals, qualified nonelective contributions (“QNECs”) or qualified matching contributions (“QNECs”). Furthermore, before a hardship distribution can occur, the employee must have taken all other available distributions from the plan (and other plans maintained by the employer), such as a loan (if available).

Employers should review the new regulations and watch for guidance from the Secretary of Treasury.

For more details, please click here.


Learn More About Our HR Related Services